The dollar advanced against all of its primary counterparts this past session – a move that contradicted the prevailing risk trend for the session and notably spared the greenback from critical support. This could prove a fortuitous move for the currency considering the heavy event risk through the final trading day of the week. Given the typical sway the Nonfarm Payrolls (NFPs) have over general sentiment trends and its history as a volatility fan, it would have been particularly easy to force the dollar into the next leg of a structural bear wave. Yet, with the Dow Jones FXCM Dollar Index (ticker = USDollar) up appreciably from 10,400, EURUSD nearly 200 pips below 1.3250 and USDJPY avoiding the 96.50; there is comfortable breathing room should the upcoming event risk ‘disappoint’.

Looking for the source of the dollar’s strength through this past session, the economic docket provided modest support to the benchmark. Initial jobless claims dropped sharply to the lowest levels in over five years for the week ending April 27, while the March trade balance report printed a substantially smaller-than-expected $38.8 billion deficit (versus $42.3 billion expected). Weightier in terms of headline clout, the trade shortfall was the second smallest in three years – a feat considering the USDollar has appreciated 5 percent since the beginning of the year and thereby makes US goods more expensive. Yet, the inordinate drop in imports (the biggest since February 2009) mars the reading as it suggests domestic consumption struggled.

While the weekly unemployment benefit claims are individually low on the market-moving totem, they plug into a deeper fundamental current: tomorrow’s labor data. There are few indicators more recognizable – and volatility-inducing for that familiarity – than the US labor numbers. The NFPs change alone is likely to generate immediate market swells simply through a kneejerk reaction to ‘front run the market’. However, the real impact comes through the stimulus implications in the Fed’s pursuit of a more temperate unemployment rate. The central bank has set an explicit target for its current regime of loose policy in a 6.5 percent jobless rate. In March, that figure was 7.6 percent. It is important to recognize that the express benchmark is level at which the FOMC will start discussing rate hikes. A full halt on QE3 purchases will likely come well before that milestone and a tapering of the $85 billion in monthly purchases of Treasuries and mortgage-backed securities, even sooner. After the write-off rate decision Wednesday, a downtick in unemployment can revive speculation on the deceleration of stimulus. This has direct implications for a smaller increase in the money supply, but far more remarkable would be the possible blow this could deliver to risk trends.

Euro Slammed by ECB Rate Cut, Threats for More

The European Central Bank (ECB) met economists’ expectations for a 25 basis point benchmark rate cut, but they would also go further in their effort to provide support to the region’s strained economy and financial system. Alone, lowering the key lending rate to 0.50 percent does little to further improve the Eurozone’s health as there are clear issues with transmitting the benefits of previous policy moves to periphery economies (like Greece, Cyprus, Spain, etc) much less individuals and smaller businesses. Therefore, had the central bank simple taken this step, the euro may not have dropped. Yet, tumble it did with EURUSD moving back to 1.3050 and EURGBP bouncing at 0.8400. To further show commitment, ECB President Draghi also lowered the marginal lending rate 50 bps to 1.00 percent, noted that the growth outlook was tipped to the ‘downside’ and they would remain open to negative rates on deposits. This is certainly substantial, but it is largely a balance sheet neutral move (doesn’t engage the stimulus war) and supports risk. We may have see the extent of the specific ECB reaction move.

Bank of Japan Governor Kuroda was on the wires Thursday to reaffirm his confidence in the stimulus plan the central bank adopted and ensure the lip service is paid to pacify the G7 by saying the effort is not aimed at manipulating the currency. What is interesting from the various remarks was his suggestion that they would eventually hold after April’s aggressive move. The bulk of the USDJPY and other yen crosses’ moves came well before the central bank actually adopted stimulus regime. We will so find out how important constant escalation was to sustaining the move.

Swiss Franc Extends Longest Rally Versus Euro Since May 2011While the Swiss franc dropped against most of its global counterparts this past session – thanks to the fundamental sympathy to the Euro – the EURCHF actually slid for a sixth session. That is the longest bearish slide for the pair since May of 2011. However, we haven’t seen any serious momentum develop alongside the consistency. Euro-area crises are the franc’s true appeal, and so we wait.

Canadian Dollar: What Will the New BoC Governor Bring for the Loonie?

A replacement was named for Governor of the Bank of Canada when standing head Mark Carney leaves for London in July. Given the USDCAD’s modest jump after Stephen Poloz was named the designate, the market is leery of its inflation-fighting credentials. Few remarks were given by Poloz, but a plan that depends on exports – which he voiced – should also be questioned.

Oil Posts Biggest Rally in 6 Months After Supply-Glut Plunge

Following the third biggest decline in US oil prices this year, the commodity remarkably rallied 3.3 percent for the biggest surge in six months. This incredible reversal was supported by a general sense of risk trend, but the lack of confirmation from the rest of the energy complex draws concerns about follow through. Also of note, futures volume showed relatively little conviction in the move.

Gold Tempers Wednesday’s Bearish Break as ECB Nibbles at Stimulus

The policy decisions this week have done what they can to ensure there isn’t too much pain for the gold. Then again, they haven’t really helped upgrade the fiat alternative’s appeal to the next level and above $1,500. After the Fed abstained from a downgrade of its currency devaluing QE3 program, the ECB delivered new measures of support. However, the moves taken by the European authority doesn’t serious expose the currency and thereby leverage the appetite for an alternative. Meanwhile, ETF holdings of gold have dropped for 23 straight days.

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